Justice News

Former Chief Executive Officer Of Hospital For Special Surgery Pleads Guilty In Manhattan Federal Court To Fraudulent Kickback Scheme

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOHN R. REYNOLDS, the former Chief Executive Officer (“CEO”) of the Hospital for Special Surgery (the “Hospital”), pled guilty today in Manhattan federal court to participating in a fraudulent scheme in which he was paid nearly $300,000 in undisclosed kickbacks from a subordinate Hospital employee. REYNOLDS, who was arrested in September 2012, also pled guilty to making false statements to a law enforcement agent. U.S. Magistrate Judge Debra Freeman presided over today’s plea proceeding.

Manhattan U.S. Attorney Preet Bharara said: “John Reynolds demonstrated a shocking disregard for his obligations as the leader of a world-renowned New York hospital when he exploited his position to line his own pockets and later lied about it to law enforcement. His guilty plea today shows that when people abuse positions of authority and responsibility for illicit personal gain, this Office will do everything in its power to hold them accountable.”

According to the allegations in the Indictment and Superseding Information filed in Manhattan federal court, as well as statements made in open court today at the plea proceeding:

From 1986 until 1997, REYNOLDS served as the Chief Financial Officer of the Hospital, the oldest orthopedic hospital in the United States. In 1997, he was promoted to the position of CEO, and served in that capacity as a full-time Hospital employee until October 2006. In order to effectuate a smooth transition in Hospital leadership to a newly hired CEO, REYNOLDS served as a contract employee in the same position through December 2008.

Between 2000 and 2005, REYNOLDS demanded and received approximately $298,500 in kickbacks from a subordinate employee of the Hospital in exchange for negotiating payment of that employee’s annual bonus. During this same time period, REYNOLDS also repeatedly made false statements to, and deliberately withheld information from, the Hospital’s board of directors about certain conflicts of interest, including his undisclosed financial arrangement with the subordinate Hospital employee.

In addition, in May 2008, during the course of the investigation of his involvement in this fraudulent scheme, REYNOLDS made a number of false statements to an agent of the New York Office of the U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), about his relationship with that Hospital employee and the funds he had received from that employee.

REYNOLDS, 64, of Venice, Florida, pled guilty to one count of wire fraud and one count of making false statements to the federal government. He faces a maximum sentence of 25 years in prison and is scheduled to be sentenced by U.S. District Judge Harold Baer, Jr. on November 7, 2013.

Mr. Bharara praised the investigative work of the HHS-OIG.

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Christopher D. Frey is in charge of the prosecution.